Question

Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures specialty heavy equipment for use in North Sea oil fields. The company uses a job-order costing system that applies manufacturing overhead cost to jobs on the basis of direct labor- hours. Its predetermined overhead rate was based on a cost formula that estimated $374,000 of manufacturing overhead for an estimated allocation base of 1,100 direct labor-hours. The following transactions took place during the year: a. Raw materials purchased on account, $235,000. b. Raw materials used in production (all direct materials). $220,000 c. Utility bills incurred on account, $66,000 (90% related to factory operations, and the remainder related to selling and administrative activities) d. Accrued salary and wage costs: Direct labor (1,175 hours) Indirect labor Selling and administrative salaries $265.ee $ 97,000 $ 145,000 e. Maintenance costs incurred on account in the factory, $61,000 Advertising costs incurred on account, $143,000. 9 Depreciation was recorded for the year. $91,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment). h. Rental cost incurred on account, $116,000 (85% related to factory facilities, and the remainder related to selling and administrative facilities) L. Manufacturing overhead cost was applied to jobs, $_? J. Cost of goods manufactured for the year, $840,000 k. Sales for the year (all on account) totaled $1,550,000. These goods cost $870,000 according to their job cost sheets The balances in the inventory accounts at the beginning of the year were: Raw Materials Work in Process Finished Goods $37.ee $ 28, $67.000 Required: 1. Prepare journal entries to record the preceding transactions 2. Post your entries to T-accounts. (Don't forget to enter the beginning inventory balances above.) 3. Prepare a schedule of cost of goods manufactured

Answer 1

1.Journal Entries

  Debit Credit

a.Raw Material Inventory $235,000

Accounts Payable $235,000

b.Work in Process $220,000

Raw material inventory $220,000

c.Manufacturing Overhead $59,400

($66,000×90%)

Utilty Expense $6,600

($66,000×10%)

Utilities Payable $66,000

d.Work in Process. $265,000

Manufacturing Overhead $97,000

Selling and administrative $145,000

salaries

Wages Payable $507,000

e.Manufacturing Overhead $61,000

Accounts Payable $61,000

f.Advertising Expense $143,000

Accounts Payable $143,000

g.Manufacturing Overhead $72,800

($91,000×80%)

Depreciation Expense $18,200

($91,000×20%)

Accumulated Depreciation $91,000

h.Manufacturing Overhead $98,600

($116,000×85%)

Rent Expense $17,400

($116,000×15%)

Rent Payable $116,000

i.Work in process $399,500

Manufacturing Overhead. $399,500

Pre determined overhead rate = $374,000/1,100 direct labour hours = $340 per direct labour hour

Applied overhead = $340 × 1,175 hours = $399,500

j.Finished Goods $840,000

Work in process $840,000

k.Accounts Receivable $1,550,000

Sales Revenue $1,550,000

Cost of Goods sold $870,000

Finished goods $870,000

2.T-accounts

Raw material inventory

Opening Balance $37,000 Work in process $220,000

Accounts Payable $235,000

Ending Balance $52,000

Work in process

Beginning Balance $28,000 Finished Goods $840,000

Raw material inventory $220,000

Wages Payable $265,000

Manufacturing overhead $399,500

Ending Balance $72,500

Finished Goods

Beginning Balance $67,000 Cost of goods sold $870,000

Work in process $840,000

Ending Balance $37,000

Manufacturing Overhead

Utilities Payable $59,400 Work in $3,99,500

Wages Payable $97,000 process

Accounts Payable $61,000

Accumulated Depreciation $72,800 Balance $10,700

Rent Payable $98,600 (Overapplied)

3.Schedule of Cost of Goods manufactured

Direct Materials $220,000

Direct Labour $265,000

Manufacturing Overhead $399,500

Total Manufacturing Costs $884,500

Add:Beginning Work in Progress $28,000

Less:Closing Work in Progress $72,500

Cost of Goods Manufactured $840,000  

4A.Manufacturing Overhead Dr. $10,700

To Cost of Goods sold $10,700

4B.Schedule of Cost of Goods Sold

Beginning Finished Goods $67,000

Cost of Goods Manufactured $840,000

Cost of Goods available for sale $907,000

Less:Closing Finished Goods $37,000

Unadjusted Cost of Goods Sold $870,000

Less:Overapplied Overhead $10,700

Adjusted Cost of Goods sold $859,300

5.Income Statement

Revenue $1,550,000

Less:Cost of goods sold $859,300

Gross Margin $690,700

Less:Expenses

Utilities Expense $6,600

Salaries Expense $145,000

Advertising Expense $143,000

Depreciation Expense $18,200

Rental Expense $17,400

Net Income $360,500